Many investors feel Microsoft is fading, despite strong earnings. Apple, which recently passed Microsoft in profit for the first time since 1990 also recently passed Microsoft in terms of market cap. IBM -- another old rival -- is expected to soon do the same. (Source: AP)

Investors fear that tablet and mobile devices will eventually minimalize PC sales, leading to Microsoft to go from a market leader to a bit player. (Source: Level Ten Design)

You just can't please some people

Microsoft Corp.'s (MSFT)
market cap -- a measure of the total current value of shares -- rests at
$219.9B USD. While that may sound great, competitor Apple, Inc.'s (AAPL)
cap is nearly 46 percenthigherat $320.5B USD.

In all practicality, both companies arefiring
on all cylinders. But Microsoft is earning far less respect for its
work.

Fueled by record sales of its Windows 7 operating
system and Office software suite, Reuters
I/B/E/SexpectsMicrosoft
to post a profit of $4.7B USD. That's approximately 27 percent less than
Apple'srecord
earnings of $5.99B USD. But as you can see, the gap in share value is
much larger, percentage wise, than the gap in profit.

There's much debate currently over the investment
community's low valuation of Microsoft. Basically, it largely boils down
to that investors perceive companies like Google and Apple to be growing, while
they feelMicrosoft
is fadingin the market.

Sales don't currently agree.

Microsoft is expected to earn a record $16.2B USD
in its third fiscal quarter (the first calendar quarter of 2011). And
sales for its Entertainment and Devices Division (Windows Phone 7, Xbox 360,
etc.) are also rapidly growing.

But at the end of the day investors appear
convinced that Microsoft is in for a rough landing. They eye the fact
that the company has been passed by Apple in profit for the first time since
1990. And they also are well aware that International Business Machines (IBM)
-- another foe Microsoft passed in the 1990s -- may soon pass it in value as
well. It currently sits at a market cap of $206.3B USD.

Following the post recession recovery the entire
tech market is booming, but the investors' strongest evidence in their case
against Microsoft may be PC sales. Over the first three months of 2011,
PC sales fell 1 percent. It is believed that is largely due to the sharp
rise in tablet and smart phone sales. People are still buying PCs -- but
they're doing so less frequently as they increasingly rely on mobile devices.
And that's troubling news for Microsoft, who has struggled thus far in
the mobile sector.

Michael Yoshikami, Chief Executive of fund manager
YCMNET Advisors is among those very concerned with this development. In
an interview withReuters, he states:

What people are going to be focused on is what's happening with
their core PC business. Is that slowing down? That's really going to
dictate what Microsoft's future earnings power is going to look like. In
the long term, their core cash flow business is going to be impacted,
particularly if we start to see an ASP (application service provider) model
where companies are essentially renting software.

His comments allude to a second major crisis
facing Microsoft -- advertising supported and rented software. Both forms
of software tend to produce lower revenues. And most of Microsoft's
profit is still driven by software sales -- particularly the sales of business
licenses. As business software giants like SalesForce.com Inc. (CRM)
and Google Inc. (GOOG)offer
rented software, Microsoft finds its earnings under assault on a second
front.

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If you have a powerful quad core ARM processor pumping 2 watts, imagine what kind of power a 125 watt X86 processor will be able to do!

You will always, ALWAYS, have more power in a bigger form factor. So no the phone won't replace a desktop, when i want a desktop i want a desktop and a phone will stay a phone.

Fuck i can't even load a 400KB excel file on my WP7 phone.

Anyway what the market don't see is that even if PC sales are decling, Microsoft is slowing moving away from core PC sales, with their phone, Xbox, tablet efforts. Who can predict that in 2016 everybody will have iPads only and microsoft will be in bankrupcy? may be it's gonna be the reverse, iPad sales will hit a seeling pretty soon and Micorsoft will ofer laptop/tablet hybrids with Windows 8 and rent office 365 software to cut salesforce.com and google. Who knows. All i know is that the market is princing Apple as if they will keep a 50% growth rate for years and Microsoft as if they're about to die.